Here is a comment I left on David Henderson’s Econlog post “Misallocation Under Rent Control”:
“What critics of rent controls are missing is this: Even if rent control is a bad idea, the market left alone by itself will not provide cheap housing to people who have low or no incomes. Markets only serve people who have income levels that allow them to participate in the market.”
This is incorrect. If I may paraphrase Don Boudreaux’s general response on this at Cafe Hayek, there are no price ceilings on lots of goods, from food to clothing to automobiles, and yet the market provides these for all, both rich and poor. There is no reason to think housing is much different.
Besides, rent control doesn’t guarantee that there will be suddenly affordable housing everywhere. As both David and Don point out, the competition only becomes fiercer for what units are available. If anything, rent control reduces the available units to the poor compared to a period absent price controls. After all, as you say the price of rent must be high enough to encourage building. In order to be effective, the price ceiling must be lower than the equilibrium price. Given that, it is no longer effective for builders to build and renters to rent. Therefore, the quantity supplied drops and housing becomes even more scarce.
Compare this to a period where rents are allowed to signal relative scarcity in a market. If rents are relatively high, this means there is a relative scarcity of housing units in the market and it signals to builders and landlords that more options are needed. Builders come in, build new units, and landlords rent them out. As the supply in the market increases, the rent falls, making it easier for those with lower incomes to rent. Conversely, when the rent is relatively low, that signals to builders and landlords there is a relative abundance in the market and that additional units are not necessary.
In accordance with my last sentence, rent control sends the persistent signal that there is a relative abundance of housing in the market and therefore no (or few) new units are needed. This is the last thing you’d want in a market if you’re trying to help the poor.
If the goal is to help the poor, the worst possible thing one can do is limit supply.